U.S. cracks down on firms that pay bribes to foreign officials

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For a government official, Nestor Moreno lived pretty large.

Moreno, the director of operations for Mexico’s nationalized electricity monopoly, drove a $297,000 Ferrari and owned a $1.8-million yacht named Dream Seeker.

Moreno couldn’t afford these luxuries on his salary at the Federal Electricity Commission in Mexico City. Instead, U.S. prosecutors alleged, they were gifts from an Azusa company that was peddling its electricity transmission equipment to foreign buyers.

Now, two executives of privately held Lindsey Manufacturing Co. — President Keith E. Lindsey and Vice President Steve K. Lee — await trial March 29 on felony charges they violated a law that prohibits corporate executives from bribing foreign governments to win contracts or other favors.


The case is one of a growing federal effort to enforce the Foreign Corrupt Practices Act in a new way.

In recent years, U.S. authorities have been investigating illegal gifts to executives at companies owned by their governments, treating the employees as government officials.

“What’s really changed is not so much the legislation, but the enforcement and the approach to enforcement by U.S. authorities,” said Washington lawyer Mark Mendelsohn, former deputy chief of the Justice Department’s fraud division.

Last year, authorities filed 24 cases under the act; they didn’t file any in 2000.

Other factors have helped to boost U.S. scrutiny, said Mike Koehler, a business law professor at Butler University who closely follows the foreign corruption law.

More U.S. companies, for instance, are doing business in countries with a history of corruption, and the Sarbanes-Oxley Act of 2002, which requires tighter internal controls, has prompted some companies to self-report violations, Koehler said.

But the government’s broader approach has been key to the growing prosecutions, including the case against Lindsey and Lee.


Their defense lawyers recently asked a federal judge in Los Angeles to dismiss the case, arguing that the foreign-corruption law was aimed at bribery cases involving foreign government officials, not employees of government-operated companies. A decision is pending.

Lindsey and Lee are accused of authorizing millions of dollars in sales commissions to intermediaries knowing that the money would be used to pay bribes to Moreno and a second official with the Mexican electrical company.

Lindsey’s lawyer, Jan Handzlik, said no one with Lindsey Manufacturing was aware that the sales commissions were used to pay bribes.

The prosecution of Lindsey and Lee is one of at least five Foreign Corrupt Practices Act cases scheduled for trial this year.

A case headed for trial Oct. 4 in Santa Ana involves four former employees of Control Components Inc., a Rancho Santa Margarita maker of valves used in oil, gas and power generation. Authorities accused them of paying bribes to officers of government-operated power firms in China, Korea, Malaysia, the United Arab Emirates and other countries to obtain business.

Overseas corruption has become a high priority at the U.S. Justice Department because bribes and other frauds harm companies that follow the law and lead to higher prices for consumers, said Assistant Atty. Gen. Lanny Breuer.


“We’re part of an international community. People benefit when companies are able to compete on an even and fair playing field in the international marketplace,” Breuer said. “When we permit companies to bribe officials abroad, that hurts us and hurts the prices we pay.”

The Foreign Corrupt Practices Act was enacted in 1977 after a series of investigations by the Securities and Exchange Commission, and hundreds of U.S. companies admitted making questionable or illegal payments to foreign government officials and politicians. But the law soon faded from public attention.

“It was a fairly obscure criminal statute that would come to life now and then,” said Los Angeles lawyer Aaron G. Murphy, author of a new book, “Foreign Corrupt Practices Act: A Practical Resource for Managers and Executives.”

But a 2004 ruling by the U.S. 5th Circuit Court of Appeals may have contributed to the increased enforcement, Murphy said. The court ruled that any payment to a foreign government official intended to increase a company’s profits violated the act.

Authorities moved boldly. They took on German engineering giant Siemens, which does business in the U.S. The company agreed in 2008 to pay $1.6 billion in fines and penalties to U.S. and German authorities for giving millions of dollars in bribes to government officials in numerous countries, including Iraq, Bangladesh and Argentina.

Last year, computer maker Hewlett-Packard Co. disclosed that it was under investigation for allegedly paying bribes to obtain contracts in Russia.


And in January, Maxwell Technologies Inc., a San Diego manufacturer of energy products, agreed to pay an $8-million penalty to resolve criminal charges that it bribed Chinese government officials to secure sales to state-owned utilities in China.

U.S. authorities are paying particular attention to cases involving China.

“What makes China such a big issue is it’s an economic powerhouse that everyone wants to participate in,” Murphy said. “And its industry is dominated by government.

“China Mobile, the world’s largest mobile telephone company, is still majority-owned by the Chinese government, which means everybody that works there is a foreign official under the Foreign Corrupt Practices Act.”

Government officials in some countries expect gratuities, so U.S. companies should train employees about how to avoid trouble, Murphy said.

“What’s too much? How much is too much? There’s really no clear-cut line,” he said.

“If you’re having a factory opening and an official shows up to cut the ribbon, certainly you can give him hats or shirts with your company logo on it,” he said. “But if you say the guy is into golf and you want to fly him to the U.S. and take him to the Masters, that’s probably too much.”

Breuer, though, said the law is clear.

“There’s no fuzzy line. The cases we’re bringing, we’re talking about bribery. Nobody is being prosecuted because they bought someone a tuna fish sandwich,” Breuer said. “We are not pursuing gray areas. We’re pursuing those who bribe officials.”